The Australian Securities and Investments Commission (ASIC) has shelved plans to force high-frequency traders to “rest" small orders on the market for a set time and meet a minimum size on dark-pool trades, in a win for sophisticated traders and banks.

Industry had complained the constraints, proposed after a review of the high-tech area, would prove costly and ineffective.

“Feedback from industry is overwhelming," ASIC chairman
Greg Medcraft
said at a Stockbrokers Association of Australia conference in Sydney on Thursday.

The proposal to “rest" small-sized trades would have required traders who use high-technology algorithms to post rapid orders to hold them for a minimum period before allowing a transaction to go through.

The decision to pull back followed a change in behaviour since ASIC began targeting the area, pushing an education drive and investigating cases of suspected misconduct.

Small and fleeting orders have dropped by 55 per cent since March, falling to 1.6 per cent from 3.6 per cent of all untraded orders.

Speed limit won’t work: Funke Kupper

Australian Securities Exchange chief executive
Elmer Funke Kupper
told the Stockbrokers Association conference ahead of ASIC’s backflip that the proposal would not work and be costly to implement.

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“We believe there is an issue with the number of small trades, but the issue is not their speed, and therefore a speed limit will simply not make a difference in practice and it will be expensive to implement," he said.

Mr Medcraft emphasised the resting-time option was still “on the table, should market noise return to ­problematic levels".

He denied the regulator had buckled to industry pressure in pausing the changes, saying it was focused on ensuring appropriate rules existed for fair and transparent markets.

“As I always say, we can do this the easy way or the hard way," Mr Medcraft said. HFT is behind about 30 per cent of trades in the ­Australian market, according to the ASX estimates.

In the area of trading in “dark pools" – essentially away from transparent markets – ASIC will wait to assess the impact of a new rule requiring such trading to be done at a “meaningfully better price" than that available on the “lit" exchange.

The rule kicked in this week and is similar to one introduced in Canada late last year, which Mr Medcraft said had cut dark-trading volumes ­significantly.

“We expect to see a similar decline in dark trading in our markets – in fact we are already seeing early signs," he said.

More new rules are en route to boost transparency of trades and ensure there is no discrimination between different clients. Details are expected in coming weeks.

Reviewing procedures

Mr Medcraft also revealed that ASIC was reviewing its procedures to make sure there was no repeat of the saga earlier this month when it accidentally blocked more than 1000 sites in the process of shutting a scam website.

“Obviously, we are not targeting legitimate sites," he said, calling the scenario unexpected.

“We did not realise, nor did anybody else, that there was multiple websites attached to that IP address.

“We’ve done this 13 times and this has never happened before.

“That cannot detract from the fact that we have to be on top of investment scams, we have to deal with them quickly, to make sure Australians’ money is not absconded with by criminals."

Novel currencies like bitcoin were moving into the mainstream and while nothing was yet on its radar, ASIC was focusing on possible threats, he said.

A new portal for market participants, which will allow document lodgements and register updates, will come online in March 2014, switching surveillance to real-time from the current manual and post-trade process.